DTI Secretary Patricia Hewitt has urged investors to back manufacturing firms amid fresh signs that the sector remains deep in the throes of recession.

A new CBI survey out on Wednesday showed that manufacturing output fell at its fastest pace for two and half years during the last four months.

A large majority of firms reported lower orders and reduced staffing expectations, while prices fell at their fastest rate since the emerging markets crisis of 1998-99.

The CBI said the survey reinforces the case for further interest rate cuts, and urged the government to explore other ways of helping the sector.

Rate cut call

"Manufacturers are really under the cosh, with many cutting prices sharply in an effort to keep customers," said CBI chief economist Ian McCafferty.

"With inflation clearly under control, a quarter point rate cut would be relatively risk free," he added.

The Bank of England has cut interest rates by two percentage points to a 37-year low of 4% in the past year in a bid to stimulate the economy.

The cheaper borrowing costs have stoked a consumer boom, but their impact on manufacturing demand has been uneven.

Analysts blame the manufacturing sector's woes on a decline in export demand due to the global economic downturn and the strength of the pound sterling against the euro.

Official figures on Wednesday showing that Britain's trade deficit with the 14 other European Union countries rose to a 30-month high of £762m in November underlined the weakness of export demand.

Central role of manufacturing

Earlier on Wednesday, trade and industry secretary Patricia Hewitt told an audience of City analysts that manufacturing is essential to the UK's economic wellbeing, despite its declining share of GDP and employment.

Ms Hewitt urged investors to back innovative British manufacturing firms.

"There are opportunities for businesses that understand the need for constant innovation, forward planning and investment," she said.

"Too often we let people talk Britain down. That road will only deter investors and discourage our bright young people from a career in science, technology or engineering."

CBI chief Digby Jones described Ms Hewitt's speech as "encouraging", but called for new incentives aimed at encouraging manufacturing competitiveness.

This government must show by its actions that it means what it says," he said.

'Euro benefits'

In what is being seen as a further show of support for the manufacturing sector, Ms Hewitt earlier on Wednesday told the Times newspaper that UK membership of the euro would bring "real potential benefits" to export-orientated UK manufacturers.

"There is no doubt at all that the weakness of the euro is making life very difficult for a lot of our manufacturers to sell what they make in the eurozone," she said.

"There does have to be something wrong when some of the most productive plants in the world are struggling to export profitably into the eurozone."